Top trends in corporate banking webinar

Please join me on Thursday, April 21st at noon EST for an overview of the 2016 edition of our Top Trends in Corporate Banking report, which was published in March.

2016-04-18_15-40-50

Corporate banks continue to place an enormous focus on investing in digital channels to meet the ever-increasing demands of clients for enhanced tools while boosting security and fraud prevention. Despite this investment, corporate banking has lagged in terms of adoption of innovative technologies. To improve that performance, corporate banking lines of business are undertaking a broad set of initiatives to overcome the inertia that has left clients behind in terms of innovation. Among the top trends, we will examine the opportunities in trade finance and customer onboarding for improving efficiency and enhancing client satisfaction.  Other top trends include fintech partnerships, distributed ledger technology and open APIs and adapting liquidity management strategies.  I look forward to having you join us on Thursday! 

Click here to register

 

 

 

Congratulations to Celent Model Bank 2016 Winners!

Last week many of us at Celent were in New York attending our Innovation and Insight Day on April 13th. It is Celent's flagship event during which we announce Model Bank and Model Insurer winners and celebrate their achievements. In addition, the program includes keynote speeches from industry leaders and Celent analysts, plenty of opportunities to network with peers, and even to experience some of the latest technologies first hand, courtesy of our sponsors.

The theme of this year's event was "Financial Services Reborn", and the Museum of American Finance on Wall Street provided an inspiring setting to celebrate innovation in financial services. Craig Weber, Celent CEO, kicked off the proceedings drawing insightful parallels between the battle of Alamo and the future of financial services. It must have been the first time in Craig's career that he had to come up on stage to the soundtrack of hip hop music, an extract from the Broadway musical "Hamilton", but it set the tone for the rest of the day – to expect the unexpected and to be open to new ideas.

Both of our guest speakers – Nadeem Shaikh, Co-Founder and CEO of Anthemis Group, and Leanne Kemp, Founder and CEO of Everledger – thrilled the audience and opened everyone's eyes to the opportunities presented by Fintech and Blockchain respectively, while our colleague Will Trout spoke eloquently about consumer-led convergence. A big 'thank you' to all the speakers, as well as the sponsors supporting the event!

The rest of the day was all about celebrating the achievements of Model Bank and Model Insurance award winners. As many of this blog's readers know, the vision for Celent’s Model Bank research, now in its ninth year, is to spotlight effective uses of technology in banking. This year we received a record number of submissions – well over 100 – that came from all over the world; the nominations were spread equally between North America, EMEA and APAC. The award winners come from four continents and nine countries and range from credit unions and microfinance institutions to the world's largest banks.

Celent Model Bank 2016 winners are:

  Model Bank 2016 Categories

  Award Winners

  1. Digital Banking Transformation

  Citizens Bank, US

  DenizBank, Turkey

  Garanti Bank, Turkey

  Santander, US

  2. Omnichannel Banking

  BECU, US

  Beyond Bank, Australia

  Standard Chartered Bank, Korea

  3. Digital Payments and Cards

  Bank of America Merrill Lynch, US

  RBC, Canada

  4. Corporate Payments and Infrastructure Modernization

  Bank of China, China

  CBW Bank, US

  5. Cash Management and Trade Finance

  CIBC, Canada

  HBL (Habib Bank), Pakistan

  6. Security, Fraud, and Risk Management

  Alfa-Bank, Russia

  USAA, US

  7. Legacy Transformation

  Sberbank, Russia

  Umpqua Bank, US

  Vietnam Bank For Social Policies, Vietnam

  Model Bank of the Year

  Eastern Bank, US

As always, we published a series of reports with detailed case studies of all winning initiatives. Celent research subscription clients can access the Model Bank of the Year and individual category reports via our website.

This year we also introduced a new award, Model Bank Vendor. We wanted to acknowledge the vendor role in helping multiple clients achieve technology or implementation excellence, one of our judging criteria, and to extend our appreciation to the entire vendor community, which is instrumental in the ongoing success of the Model Bank program. Celent recognized two companies as Model Bank Vendors for 2016:

  • EdgeVerve Systems
  • Nucleus Software

Congratulations to all our award winners! We are grateful to have been exposed to so many extraordinary initiatives and the talented individuals responsible for their success. We look forward to continuing with the Model Bank program next year to identify and award the most impressive banking technology initiatives from around the world, and will begin accepting nominations again in September – stay tuned!

 

Liquidity management: Staying afloat in turbulent times

Liquidity management has recently begun to assume increasing importance as four key external forces create turmoil in a historically placid section of corporate treasury. External Forces

The most significant regulation affecting liquidity management is Basel III, along with others such as money market fund reform. Taken together, they’re changing the way banks structure their balance sheets and the relationship between business customers and their banking partners.

On the economic front, businesses of all sizes continue to seek opportunities abroad. Combined with an environment of negative interest rates in several countries, this is making management of liquidity distributed across markets, currencies, and business units that much more complex and increasingly challenging.

Industry initiatives such as expanded use of ISO 20022 XML and real-time payments provide both opportunities and challenges for cash and liquidity management, and as the speed of transactions accelerates, so does the need for even more timely information.

Technology evolution has facilitated a move toward centralisation, which in turn is accelerating the adoption of more advanced cash and liquidity management capabilities to support the modern day treasury function.

With external forces causing substantive and permanent shifts in available options, corporations need to have the technology infrastructure in place to manage their liquidity and investments with tighter risk governance. As discussed in the new Celent report “Staying Afloat: External Forces Impacting Corporate Liquidity Management,” no one can predict what lies around the next bend in the river, but robust strategic preparation can equip treasurers to ride out the next stretch of liquidity management turmoil.

The new 4 C’s of commercial lending

Last week, I participated in a Finextra webinar on the topic of “Connected Credit and Compliance for Lending Growth” with panelists from ING, Vertus Partners, Misys and Credits Vision.  As I prepared for the webinar, I thought back to my first exposure to commercial lending when I worked for a large regional bank and I recalled the 4C’s of commercial lending from credit training:  character, capacity, capital and collateral.  All of those original 4C’s are still relevant in today’s environment when evaluating borrowers, but when considering the state of the commercial lending business in 2016, we need to think about an entirely new set of 4C’s:
  • Constraints on capital and liquidity
  • Cost of compliance
  • Changing client expectations
  • Competition from new entrants
On a global basis, banks are being forced to restructure their business models, technology platforms, and organizational processes in order to grow their portfolios, remain profitable, and stay in the good graces of their regulators.  All the while, meeting the evolving demands of clients who can view and manage their personal finances on demand, at their convenience, using the device of their choice. Despite these challenges, the panel remains optimistic that banks can and will evolve to grow this critical line of business. finance590x290_0 Where does this optimism comes from? Alternative lenders provide both a threat and an opportunity for banks as they make the difficult decisions on whether and how to serve a particular segment of the commercial lending market. Fintech partners offer more modern solutions than the decades-old clunkers that many banks still use; providing for more efficient and accurate decisioning, enhanced visibility and processing within the bank, and where appropriate, self-service capabilities.  Connectivity with clients and partners will increasingly be the hallmark of a successful commercial lender. For more insights from the panel, please register for the on-demand version of the webinar here: Finextra: Connected Credit and Compliance for Lending Growth.  

Banks are dead? Long live banks!

A few weeks ago, Zil blogged about the recent set of reports that he and I wrote on reimagining payments relationships between banks, retailers and Fintech. They were commissioned by ACI Worldwide, and the reports took a perspective of each party. Given the current focus on the topic in the industry, we highly encourage you to read them. But it’s worth just summarising our thinking in a few sentences. Contrary to what many people think, we don’t believe that Fintechs will replace banks, but that all three parties will co-exist, and rather than Fintech being a wedge between bank and client, they will become the glue, and an increasingly important part of the ecosystem. Whilst I trust our insight was unique, the topic certainly isn’t. It seems mandatory to have Fintech in every press release and every conference! What is interesting though is that many people seem to see Fintech in isolation, and that there are many other things happening that are not just enablers, but perhaps multipliers of the impact that Fintech will have. Take PSD2 and the XS2A provision. We’ve covered this numerous times in reports, but in short, is a mandated requirement to allow third parties access to account level information, and the ability to initiate a payment from that account. In theory then, a Fintech can now access your data at your bank and, with your permission, pay anyone directly from your account. In the context of above, what is interesting is the responses we’ve seen from the industry. A few banks have seen the opportunity. Most see it as a threat and/or a regulatory burden they have to fulfill. Few Fintechs seem yet to have publicly declared any interest – or indeed, knowledge! – of the PSD2 at all. The most interesting conversations seem to have been coming from the merchants. They’re exploring the potential to bypass cards. The appeal is obvious – if they become a third party provider, they can get the consumers to push payments directly, with no fees payable by the merchant. Given the growth in real time payments, these will be increasingly good funds, with instant value. One scenario then sees the merchants dramatically impacting the business model of the banks, with card revenues plummeting, with the merchants benefiting from improved cash flow. Yet there are other implications in that scenario. For example, can those merchants actually handle the volume of payments? Is their ERP system real-time, and able to reconcile at the same speed? Are they sophisticated enough to cope in the change in their cash management profile? Yet central to this change remains the bank. Those merchants will need the banks more than ever, not less. The services might change, the business model might change for most of the parties involved, but the requirement remains as strong as ever. Banks are dead? Long live banks!

The UK open banking API framework – more questions than answers?

This week the Open Banking Working Group (OBWG) published its framework for the UK Open Banking Standard. The framework seeks to create:
• An open API for data that is shared, including, but not limited to, customer data, and
• An open data API for market information and relevant open data

Secure, publicly accessible Web APIs have been around for more than ten years in the financial services sector. Many popular eCommerce platforms employ APIs to increase adoption by exposing various features of the underlying platform to third-party application developers. These include PayPal, Stripe, Authorize.Net and LevelUp. Payment APIs have grown by almost 2,000% since 2009, with Financial APIs growing at more than 470% during that time.

Banks embrace APIs to modernize and streamline back-office connectivity, especially for customer-facing digital channels. However, except for a smattering of bank API hackathons featuring mock customer account data and the well-publicized external APIs made available by digital bank Fidor, banks are reluctant to publish open, external APIs for customers or third-party to access financial data. Two major government initiatives are forcing their hands.

The account access provisions of PSD2 require Euro Area banks to open access to customer information where third-parties have the explicit consent of the customer. The UK HM Treasury Open Banking initiative strives to improve competition and consumer outcomes by giving customers the ability to share their transaction data with third party providers (3PPs) using an open API standard for UK treasury.

The UK government established the Open Banking Working Group in August 2015, giving it the remit to design a detailed framework for the development of an open API standard in the UK. The detailed framework was published this week after review by the HM Treasury.

Open Banking Framework

Sifting through the 128-page report, several key issues remain to be addressed:

Governance: The report recommends the creation of an independent authority to oversee the development and deployment of the Open Banking Standard. As co-chair of the OBWG, is the Open Data Institute vying to become that independent authority? IMHO, the banking industry doesn’t need yet another standards body. Why not engage the expertise of an existing organization like the International Organization for Standardization (ISO), the governance body of the popular ISO 20022 standard, to ensure an internationally agreed upon approach with the involvement of a diverse group of stakeholders?

Data Standard: The report recommends that existing standards, datasets and structures be reused where possible but also mentions further investigation as to whether the Open Banking Standard will need a separate reference data model. I hope that the OBWG examines the widespread adoption of the ISO 20022 financial industry message scheme and its contribution to standardizing and simplifying financial data exchange worldwide.

Data Protection: The report states that banking customers (individuals and businesses) need to understand their responsibility for informed customer consent and ensuring their data is protected. This is problematic in light of continued social engineering banking losses, an emerging global fraud threat. The report acknowledges that it is likely that cyber-criminals will specifically focus on the open API as a new attack vector. Consumer education needs to be the responsibility of the Open Banking ecosystem: Banks, 3PPs, government agencies, and consumer watchdog groups.

Developer Resources: The recommendation that a central developer hub be created to support developers is a seemingly practical idea. However, there are a number of leading API platform providers and no universally accepted RESTful API design methodology, which will lead to a scramble by the proponents of RAML, SWAGGER and Apiary.io to be the provider (and language) of choice for creation of common open APIs and developer sandbox.

Implementation Schedule: The report outlines a multi-year release schedule with the first release to be completed within 12 months of the report’s publication—February 2017. This seems to be very aggressive considering that detailed design specifications are not yet complete, nor has an independent authority been selected to oversee development of the standard.

Monetization: Respondents to the February 2015 Call for Consultation estimated the cost of developing an open API standard would range from “negligible to tens of millions of pounds.” At first glance the Open Banking initiative seems to provide all of the benefit to fintech firms with all of the cost shouldered by UK financial institutions. Celent anticipates acceleration of bank/fintech partnerships aimed at creating differentiated value propositions.

Interoperability: Banks and solution providers are closely watching the intersection of the UK Open Banking initiative and the account access provisions of PSD2. There is significant overlap between the two initiatives and industry participants hope that they will be joined up, but for now the HM Treasury is actively seeking to take the lead with its aggressive implementation schedule. Interoperability across geographies and sectors fosters sustained innovation and broader participation by third parties, contributing to the UK Treasury’s goal of improving competition and consumer outcomes.

The recommendations for implementing the Open Banking Standard will be carried out by the Open Banking Implementation Entity. Celent analysts are watching developments closely and assessing their impact across our coverage areas. We welcome your feedback—what are your thoughts about opening up customer banking data to third-party providers?

Corporate digital delivery channels and the customer experience

Celent feels (and others agree) that it’s important that banks deliver an omnichannel digital customer experience, but the term means different things to different people. Based on our own research, we believe that omnichannel is about delivering a customized but consistent financial institution brand experience to customers across all channels and points of interaction.

An omnichannel experience is even more critical when delivering services to corporate clients. Each client has a unique set of business and technology requirements based on their corporate treasury organizational structure, geographic footprint, and treasury technology sophistication. A consistent financial institution brand experience is important to corporate clients, but the experience needs to be tailored to each client segment’s unique needs. For the largest, most complex organizations, an even more bespoke and customized experience is critical.

With banks investing increasing amounts of capital in technology incubators and startup accelerators, the pace of innovation in digital channels continues to grow. But for corporate clients, innovation isn’t about incubators, accelerators, or hackathons. Innovation is about simplification — increasing usability, straight-through processing, and digitization. As outlined in the new Celent report, Tailoring the Customer Experience: External Forces Impacting Corporate Digital Channels, the competitive environment, regulatory climate, economic conditions, and technology impacts are shaping the evolution of corporate digital channels. But emerging technologies will have the largest impact. External Forces Corporate digital channels are just one component of a complex treasury technology landscape, but a critical one. Corporates maximizing the efficiency and transparency of digital channels today are enabling and preparing themselves for innovative technologies for the future.

Silicon Valley? No, Chilecon Valley

In previous blog posts regarding fintech in Latin America my position was, and remains, that one of the reasons for being behind is that it lacks of a “Silicon Valley” equivalent. Efforts to create a fintech ecosystem, as Finnovista is doing, become a good alternative to overcome the absence of a geographical pocket of innovation. Particularly consider the market fragmentation of Latin America comprised by 19 countries, some of which have 3M inhabitants to Brazil having +200M. People in most countries may speak the same language but markets are far from being similar just for that. Under (or against?) these circumstances, Chile is working to become Latin America’s Silicon Valley. One of its most attractive initiatives is “Start-Up Chile”, created four years ago to transform the Chilean entrepreneurial ecosystem. It began with a question: “What would happen if we could bring the best and brightest entrepreneurs from all around the globe and insert them into the local ecosystem?” The initiative offers work visas, financial support, and an extensive network of global contacts to help build and accelerate growth of customer-validated and scalable companies that will leave a lasting impact on the Latin American ecosystem. The idea is to make the country a focal point for innovation and entrepreneurship within the region. Start-up Chile, with only four years, is a start-up itself but it has a good starting point and great potential:
  • Chile has demonstrated for years its entrepreneurial spirit, with Chilean companies competing successfully in various industries (air transportation, financial services, and retail, just to mention a few) and a stable economy.
  • This year two Chilean start-ups were the winners of the BBVA Open Talent in Latin America: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin.
While other countries and cities in the region are working in offering support to start-ups, it seems Chile is leading the way. Hopefully this triggers some healthy competition in the region, which in the end will benefit all. In the meantime, let’s meet at Finnosummit in Bogota – Colombia next February 16th. Join financial institutions, consultants, tech vendors, startups and other digital ecosystem innovators, to learn how startup driven disruption and new technologies are reshaping the future of financial services in the region. Remember to use Celent’s discount code C3L3NT20% for a 20% discount on your conference ticket.  

Model Bank nominations deadline extended to December 11th

Today we announced that we are extending the deadline to submit nominations for Model Bank 2016 awards until December 11th. Thank you to all of you who already submitted, and to those who told us that you are working on your submissions. We appreciate that this is a busy time of the year for everyone, and we hope that the extra time will make it easier for you and your clients to submit the initiatives. And of course, it’s not too late to get started if you would like to share how your bank is using technology in a differentiating way. You can see more details on the Model Bank program in my earlier blog, or better yet, by going to the initiative nomination page online and downloading a complimentary report, Becoming a Model Bank: A Guide to Winning Celent’s Main Award for Financial Institutions. Don’t forget, in addition to bragging rights for winning the most prestigious Celent’s Banking award, you also have the case study of your initiative featured in our reports and receive complimentary invitations to Celent’s flagship event, Insight and Innovation Day in New York. 2015 was a sold-out event, and 2016 promises to be even better. It will be on April 13th 2016 at the Museum of American Finance. Tickets are already selling fast, so submit your initiatives now for a chance of winning the Model Bank award and free entry, or register here.

Reports of small business lending’s death are greatly exaggerated

I’ve spent much of my career in and around the financial services sector focused on small business banking. In the US, small business customers get bounced around like Goldilocks—they are too small to be of interest to commercial relationship managers and too complex to be easily understood by retail branch staff.

I applaud those banks that make a concerted effort to meet the financial needs of small businesses. After all, in the United States small businesses comprise 99.7% of all firms. (According to the US Census Bureau, a small business is a firm with less than 500 employees). In general, larger small businesses are better served as they use more banking products and generate more interest income and fee revenue than smaller small businesses. The lack of “just right” solutions for many small business financial problems has been a golden opportunity for FinTech firms.

In the FinTech space, much of the focus is on consumer-oriented solutions like Mint for financial management, Venmo for P2P payments, and Prosper for social lending. But FinTech companies figured out early on that small businesses weren’t getting the attention they deserved from traditional banks. Many of the top FinTech companies—Square for card acceptance, Stripe for e-commerce, and Kabbage for business loans, have gained prominence serving primarily small businesses.

Online small business lending by direct credit providers has especially taken off. Disruptors like Kabbage, OnDeck, and Lendio were quickly followed by more traditional players like PayPal, UPS, and Staples. Morgan Stanley reports that US small business direct lending grew to around $7.5B in 2014 and projects expansion to $35B by 2020. They also maintain that most of this growth is market expansion, not cannibalization of bank volumes. This makes sense—direct lenders usually attract borrowers that can’t get bank loans and charge accordingly. For example, Kabbage averages 19% interest for short term loans and 30% annually for long term loans. According to the Federal Reserve, the average interest rate for a small business bank loan (less than $100k) in August 2015 was 3.7% and current SBA loan rates range from 3.43% to 4.25%.

And that common wisdom that US banks have pulled back from small business lending? Let’s take a look at data compiled by the FDIC starting in 2010.

Small Business C&I Loans The overall volume of small business loans increased year-over-year from 2010 to June 2015, with a CAGR of approximately 3%. The total dollar value of small business loans outstanding dipped slightly in 2011 and 2012, reflecting slightly smaller loan amounts, a result of tighter lending standards. The facts are that US small business loan volume and dollar value outstanding are at their highest levels since the FDIC began collecting this data from banks. And by the way, there are almost 2,200 fewer banks in the US today than prior to Lehman’s collapse in 2008. Banks are happy to work with credit-worthy small businesses to meet their working capital needs. And direct lenders are happy to work with everyone else—-a win-win for all.